FIN Exam 2 (Chapter 8)

stock exchange

a ________ _______ market is a physical or virtual place where securities are traded - the new york stock exchange is an organized and physical exchange - the Nasdaq is an organized, virtual exhange

floor broker

a person at the NYSE with a trading license who represents orders on the floor, balancing speed and price to get the best execution

cumulative voting

means that each shareholder may distribute votes however he or she wishes. If there are four seats on the board and the shareholder owns 20 shares, he or she can cast 80 votes for one board member.

stockholders

quarterly dividends MAY be paid to ____________

preferred stockholders

quarterly dividends are paid to ___________ __________

realized

selling the building for more than its purchase price generates a capital gain; the gain is taxable when ______

bondholders

semi-annual interest is paid to _______

money markets

short term financial instruments, which mature in a year or less, trade in ________ _______

S&P 500

the _______ ___ measures the performance of the 500 largest US firms (large caps)

Russel 2000

the _______ ____ measures the performance of US small caps

investment banker

the ________ _______ helps decide how much cash to raise, how many and what kind of securities to issue, the offering price, the offer date, etc

Nasdaq

the ________ composite index measures the performance of the 3000+ stocks traded on the Nasdaq

SEC

the ________ regulates the listing and trading of financial securities

capital loss

when the value of an asset falls below the price you paid for it

capital gain

when the value of an asset rises above the price you paid for it

straight

with _________ voting, the directors are elected one at a time and the only way to guarantee a seat is to own 50 percent plus one

broker

a _____ matches buyers and sellers - they don't own inventory - they make money by earning commissions on all buy and sell transactions

dealer

a ______ buys and sells - they own their own inventory - they make money on the spread between the bid and ask (purchase and sale) price

Common stock

- Is the most common type of stock - Represents ownership of the company - Has no maturity date - May or may not pay dividends - Generally has voting rights - Last in line in the event of liquidation

preferred stock features

- receives preferential treatment (relative to common stock) regarding: Payment of dividends, and priority in the event of liquidation. - Usually has a par (liquidation) value of $100 - Is considered a hybrid security: - Like bonds, provides regular income to owner - Like common stock, cannot cause bankruptcy Feels like a bond since we get regular paymentsadvan

OTC market

-not an exchange -trading is directly between buyer and seller examples: Pink Sheets, OTC Bulletin Board

designated

An NYSE member who acts as a dealer in particular stocks is called a a__________ market maker.

disadvantages

_________ of common stock - requires giving up some ownership and control - dividend payments are not tax-deductible - investors demand greater return than on debt

specialist

The NYSE member who acts as a dealer in a small number of securities is called a(n) _____.

advantages

________ of common stock - does not require the firm to make fixed payments - never matures, never has to be repaid/repurchased - does not increase the firm's debt ratio

disadvantages

________ of preferred stock - dividend payments are not tax-deductible expenses - investors expect greater return than on debt (because of the risk-return trade-off)

advantages

________ of preferred stock - does not involve issuing voting rights - dividends can be deferred - does not increase the firm's debt ratio

index

an _____ is a collection of stocks, bonds, or consumer goods; as the prices rise or fall, the _____ rises and falls commensurately

index

an ______ is used to gauge performance in the market and/or economy

yield

an investments total earnings expressed as a percentage

capital gains yield

capital gain / beginning value

dividend yield

dividend income / beginning value

yield

dividend yield + capital gains yeild

percent return

dollar return / beginning value

yield

dollar return / beginning value

staggered

in a ___________ board, only a fraction of the directorships are up for election at any one time.

yield

income + (ending value - beginning value) / beginning value

yield

income + capital gain / beginning value

total dollar return

income from investment + capital gain (or loss)

capital markets

long term financial instruments, which do not mature in a year or less, trade in ______ ________

investment bankers

may underwrite the issue or may work on a best-efforts basis (they'll do their best job but no guarentees). they help the firm raise cash